David Moenning is a the Chief Investment Officer at Heritage Capital, which focuses on active risk management of the U.S. stock market. Dave is also the proprietor of StateoftheMarkets.com, which provides free and subscription-based portfolio services. Dave began his investment career in 1980... More

Good morning. If nothing else, the bear camp is certainly consistent. Despite the fact that the stock market (as defined by the S&P 500 Index) is up +16.2% year to dates and both the Dow and S&P are a buy-program away from new highs for the current bull market cycle, our friends in fur continue to pound the table that the end is nigh. In fact, one of my now self-proclaimed "uber bear" buddies said yesterday that the market "Feels to me a lot like 2007 and this isn't going to end well." Yikes.

But in the next breath, my friend, colleague, and lifelong fan of "da Bears" stated that the only thing that really bothers him about his less than optimistic outlook is the fact that there are so many people that agree with him. His point was that there are lots and lots of high profile, respected analysts and fund managers that are openly negative about the macro view. And as my friend stated, "Tops don't happen when everyone is negative."

Think about that for a moment. In 2007, stocks were making new highs and the bulls were riding a four year string of gains. The economy was growing. Housing was booming. Jobs were plentiful. And corporate earnings were projected to reach yet another record high the following year. Not surprisingly, those with a bearish macro view were few and far between. What this means is that nearly everyone, everywhere was fully invested in "risk assets."

Compare that to today's global macro outlook by doing your own little survey. Ask five people who you believe to be savvy from an economic and/or investment perspective about their outlook for global growth. My guess is that you will hear about Europe and the drag the debt crisis will have on the global economy. Next, you will likely hear about China's growth slowdown as well as many other emerging market economies. Then there is the fiscal cliff. In addition, it is an odds-on bet that a slowdown in earnings growth is going to be mentioned. You may also hear about the Middle East, oil prices, and the potential for inflation to perk up soon.

Now let's talk about what individual investors are doing. Although stock market investors have enjoyed decent gains since the crisis ended in March 2009 (the S&P is up +116% since then) the public has been pulling money out of stock funds at a breakneck pace. After the tech bubble and the credit crisis, it appears that John Q. Public has seen enough and has been shifing massive amounts of money from stocks into bonds. Just last week, over $11 billion was pulled from equity funds in one week alone - the largest such withdrawl since after the U.S. debt was downgraded. And where did that money go? Bond funds, of course. Despite near record low yields on bonds, bond funds posted their largest inflow in three years last week.

Then there are the technicians. We've hears about the divergences on the charts, something called "3 Peaks and a Domed (or is it "doomed?") House," and a great deal of talk about the lack of volume these days. We hear daily about how HFT is ruining the stock market and about how the game on Wall Street is rigged to favor the big banks.

The point is that despite the fact that the stock market is near its highest levels seen in five years and not that far away from all-time highs, the bearish view remains at least as, if not more, popular than the bullish outlook. And in terms of folks being overinvested in equities or overbelieving in the prospects for the future, the opposite is true here. In other words, there is no "irrational exuberance" in stocks. Heck, there is barely any exuberance at all.

The bottom line here is that major tops in the stock market don't tend to occur when everyone is looking for them.

Turning to this morning... The economid data from China overnight wasn't half bad, which led to a rally in Asian indices. In Europe, all eyes are on the start of the latest and greatest EU Conference. And here at home, traders are continuing to digest the most recent earnings and waiting a big slug of economic data.

On the Economic front... We'll get the reports on Weekly Jobless Claims, Bloomberg Consumer Comfort, Leading Economic Indicators and Philly Fed this morning.

Thought for the day... Love never fails; Character never quits; And with patience & persistence; Dreams do come true. -Pete Maravich

Pre-Game Indicators

Here are the Pre-Market indicators we review each morning before the opening bell...

The opinions and forecasts expressed herein are those of Mr. David Moenning and may not actually come to pass. Mr. Moenning's opinions and viewpoints regarding the future of the markets should not be construed as recommendations. The analysis and information in this report and on our website is for informational purposes only. No part of the material presented in this report or on our websites is intended as an investment recommendation or investment advice. Neither the information nor any opinion expressed nor any Portfolio constitutes a solicitation to purchase or sell securities or any investment program. The opinions and forecasts expressed are those of the editors of StateoftheMarkets.com and may not actually come to pass. The opinions and viewpoints regarding the future of the markets should not be construed as recommendations of any specific security nor specific investment advice. One should always consult an investment professional before making any investment.

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True that the (U.S.) market just seems to be going up when all the economic fundamentals and sentiment suggests it should be going down. So how to interpret this? One possibility is that, while the public (small investor) has been fleeing equity mutual funds, unknown to them, their pension plans have been piling in. This would more than offset the public withdrawal. Interpreting sentiment these days is also difficult because it almost presupposes that no one is aware of the sentiment measures themselves. Perhaps the small investing public is now more aware than they used to be that the game is to pump the market up until the general public is suckered in and then crash it for maximum profits (i.e. the smart boys sell out near the top). What will happen to the market when the public no longer wants to play?

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